LONDON, Oct. 29 -- The UK will have sufficient capacity in LNG terminals and natural gas pipelines to receive gas imports in the medium term, but price will determine if gas is sent to the country, a new government report concluded.
The report, developed with UK energy regulator Office of Gas & Electricity Markets (Ofgem), said LNG will play a crucial role in meeting the UK's gas needs along with pipeline gas as the country's indigenous supplies fall. "Further investment will be needed to avoid market tightness around the middle of the next decade and in subsequent years," the Department for Business, Enterprise, and Regulatory Reform said.
Use of coal, oil, and nuclear power is unlikely to be limited by resource availability, the report added, stressing that the UK could produce additional indigenous coal. Energy efficiency will be important to managing energy demand, particularly during peak periods.
However, planning delays could threaten the development of major energy projects along with the skills shortage in engineering and construction sectors to build new facilities.
Oil imports are likely to rise as domestic production wanes but present risks such as increased complexity of international routes as oil crosses more borders and resource nationalism. Transportation is expected to be the biggest consumer of oil products, while oil use by industrial and domestic consumers is expected to fall.
UK refiners face growth in demand for diesel and jet fuel and falling demand for gasoline. They must control quality of oil products and biofuels while either looking further abroad than they do now for high-quality crude or increasing investment in units enabling them to run lower-quality feedstock.
The government is confident it can access global oil supplies as UK imports increase because it has the relationships in place and an established refining industry.
According to the report, carbon prices in the long term will attract investment in new, low-carbon power-generation capacity. "In the short term, however, uncertainty about the future of the carbon market may cause delays in investment in new generating capacity. This underlines the importance of an early and successful conclusion to discussions on Phase III of the European Union Emissions Trading Scheme, which is due to start in 2013," the report said.
Energy Minister Malcolm Wicks said it was crucial that the government not be complacent about delivering energy security. Around 14 Gw of new power-generation capacity is under consideration, and gas import capacity has quadrupled over the last few years. The report's publication coincides with news that nearly half of the country's nuclear power plants have not been working because of breakdowns and maintenance.
Jonathan Stern, director of gas research, Oxford Institute for Energy Studies, welcomed the report, stressing that it "covers a broader set of sectors and looks at security of supply from more dimensions." Stern said the consultative aspect ensured that a broad range of information was gathered to evaluate future scenarios in energy markets.
Renewable sources are expected to play an important role in meeting the power shortfall, though by how much is unclear.
Separately, Wicks indicated on Oct. 23 that the government would scale down its aspiration to source 20% of Britain's energy supply from renewables by 2020. Leaked documents reported in the national press said there were great practical difficulties in implementing the goal. The target is likely to be up to 15% instead, and Wicks said it did not mean that the UK was rejecting the EU-wide target of 20% by the same date.
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